The first indication of a change in investment funds' activity on the Tel Aviv Stock Exchange (TASE) today was with Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA). Another sign was today's record trading volume of NIS 4.11 billion.
Teva was the only Tel Aviv 25 share to buck the market today, with the share rising 3.5% on the day's largest turnover of NIS 826 million. Market sources attributed the rise to foreign investors changing their positions on the TASE ahead of change in the TASE status to MSCI developed market tomorrow at 5 pm. Despite gains in premarket trading on Nasdaq, the share fell 1.9% at the opening to $54.63.
On Thursday, Israel will be reclassified by MSCI Inc. (formerly Morgan Stanley Capital International) as a developed market. Israel will join the MSCI World Index, alongside 23 countries, including the US, Canada, Japan, and countries in Western Europe. Until now, Israel was included in the MSCI Emerging Markets Index. The change will, however, affect Israel's weight: from 2.8% in the MSCI Emerging Markets to 0.4% in MSCI World.
MSCI tracks more than 17,000 stocks worldwide, and the vast majority of the world's investment institutions use the MSCI indices in their investment decisions. For this reason, a country's weight in an index can be of critical importance.
Sources estimate the aggregate capital of the investment institutions that track MSCI indices at $1.5 trillion, of which $1.3 trillion in invested by funds tracking MSCI World.
The Tel Aviv Stock Exchange (TASE) will close 30 minutes later than usual tomorrow, at 5 pm, in anticipation of very heavy trading in top stocks as investment institutions that track the MSCI Emerging Market Index sell shares and investment institutions that track the MSCI World Index buy shares.
Bank Hapoalim analyst Yaron Friedman gives a pessimistic and optimistic scenario of the consequences of the change for Israeli stocks. Pessimistically, the reduction in Israel's weight in the MSCI World Index could cause global investors to lose interest in the TASE.
Optimistically, given that global investment in MSCI World is ten times the amount of investment in the MSCI Emerging Markets Index, investment in Israel could increase, not decrease. In addition, fund managers cannot only invest in large countries, and also have to invest in small ones to obtain preferential yields. "Here, Israel has an advantage: its macroeconomic and corporate figures are good compared with other companies with a similar status, such as Greece, Portugal and Ireland, which are at the heart of the current crisis," says Friedman.
Published by Globes [online], Israel business news - www.globes-online.com - on May 25, 2010
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